Priceline (NASDAQ:PCLN) and TripAdvisor (NASDAQ:TRIP) are teaming up in the remarkably dynamic online travel business. This is a major announcement with big implications for the broader industry, and it will affect not only Priceline and TripAdvisor but also competitor Expedia (NASDAQ:EXPE).
Financial terms of the agreement were not disclosed. However, the big news is that Priceline and TripAdvisor are forming a strategic partnership whereby Priceline's online travel brands will participate in TripAdvisor's instant-booking platform. Booking.com will be the first Priceline brand to participate in the partnership, and other names like priceline.com and Agoda.com are expected to join in the not-so-distant future.
TripAdvisor launched its instant-booking platform aimed at the U.S. consumer in June 2014, with a gradual rollout to other international markets expected over time. The service allows TripAdvisor visitors to instantly make a reservation after comparing prices and available choices, as opposed to sending them to an outside booking service.
With the incorporation of Booking.com into instant booking, travelers will be able to see Booking.com branded hotel listings and can simply click the "book now" button to make a reservation on TripAdvisor directly. TripAdvisor will then let consumers know that the hotel booking is being powered by Booking.com, which will also handle all the operational details
Stephen Kaufer, president and CEO of TripAdvisor, sounded quite pleased with the agreement in the press release:
Having The Priceline Group join the instant booking platform is a huge win for travelers, and we couldn't be more thrilled to have them as our first strategic, global online travel agency partner. Millions of TripAdvisor users coming to the site to plan, compare prices, and book their trip will be able to instantly book options from The Priceline Group's global hotel inventory in addition to the 235,000 properties that are already instantly bookable on TripAdvisor.
Winners and losers
TripAdvisor and online travel agencies such as Priceline and Expedia have a mixed relationship, being at the same time partners and competitors. TripAdvisor drives plenty of traffic to both travel platforms in exchange for referral fees through its meta search engine, but it also acts as an alternative to Priceline and Expedia services.
In this context, Priceline and Expedia have been playing hard to get with TripAdvisor's instant booking, as they're concerned about the possibility that customers will go directly to TripAdVisor and stay away from their travel platforms. For this reason, TripAdvisor has mostly relied on direct alliances with hotel operators, with Marriott being one of its most important partners.
Now that Priceline is jumping on board, this is a massive shot in the arm for TripAdvisor and its instant-booking business. Based on management's comments during Priceline's latest earnings conference call, Booking.com has about 707,000 hotels and other accommodations in 220 countries and territories, up by a strong 35% over last year.
This means the alliance with Priceline is a real game changer for TripAdvisor in the instant-bookings business. TripAdvisor stock exploded 25% this week after the news hit the wires. While short-term stock movements are typically exaggerated, there's little doubt that the deal is great news for TripAdvisor investors.
As for Priceline, the company will probably benefit from expanding revenues from this alliance, even if an increased dependency on TripAdvisor becomes a greater risk to watch in the middle term. Besides, it sounds like Priceline is outsmarting its main competitor Expedia by strengthening its ties with TripAdvisor.
Expedia, on the other hand, will be facing increased competitive pressure with the partnership between the two companies, and it could lose some market share in the U.S. According to research from Morgan Stanley, Expedia gets nearly 9% of revenue from TripAdvisor, so the impact could be considerable but not devastating.
This is clearly a big win for TripAdvisor, and it also sounds like a smart move from Priceline, although the strategic implications for the online travel platform over the middle term are intriguing. When it comes to Expedia, the competitive landscape is getting more challenging, and Expedia is arguably the main loser from this arrangement.
Andrés Cardenal owns shares of Priceline Group. The Motley Fool owns shares of and recommends Priceline Group and TripAdvisor. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.